October 5, 2022

CloudsBigData

Epicurean Science & Tech

Web3 Can’t Fix the Internet

10 min read

If you believe the hype, Web3 is the next inevitable generation of the Internet — a way for developers and startups to take back control from big corporate platforms. Investor and Web3 advocate Chris Dixon claims that, in the blockchain-based Web3, “ownership and control is decentralized” and digital tokens will give everyone “the ability to own a piece of the internet.”

Web 2.0 ended the previous era of static, read-only GeoCities pages, bringing us social media, apps, and platform companies like Google, Amazon, and Facebook — behemoths that users are now turning against. Web3 is meant to combine the best of both: the open and decentralized architecture of Web 1 with the functionality and value-creating nature of Web 2.0. We can all get rich and “the man” won’t be there to steal our data or tell us what to do.

But if Web3 is sometimes depicted as anti-capitalist, this couldn’t be further from the truth. The vast majority of the tech developed in this space is designed to make more money for a few, and certainly not to empower most of us. The utopian rhetoric around freedom, decentralization, and an ownership economy might help investors sleep at night. But at its core, it’s just a way of selling a new generation of products to the public.

To the extent that it will redistribute power, Web3 surely could shift attention from one group of tech companies to another. But ultimately, it’s offering a technical fix for a political problem: who owns the internet. To insert digital token systems into online communities will only further intensify the existing monetization of digital spaces and continue the capitalist drive of commodification. To really break from this logic, we need a form of platform socialism that would support the development of digital tools as public goods — free and available for all to use.

Web3 is coming, and the plan is to build it on the blockchain — publicly accessible distributed ledgers maintained by participants that support cryptonetworks such as Bitcoin and Ethereum. New transaction data written onto the blockchain is immutable and can be verified by all parties, facilitating trustless interactions and automating basic functions that usually require a bank or financial authority.

The number one selling point of Web3 is that it will decentralize the web. This will supposedly allow people more privacy and control over their online experience, while enabling a more egalitarian distribution of value. The main players behind the “movement” are venture capitalists and cryptobros, but it also has its fair share of well-meaning developers and enthusiasts interested in building better products. It’s hard to tell the genuine interest from the self-serving hype, not least given the suspicious number of Medium articles written by venture capitalists talking about wresting power from corporations and giving it back to “the people.”

This is connected to the reason Web3 went viral in 2021: it excites people who are sick of platform capitalism. The current generation of tech oligarchs have created the conditions for a plausible enough story of Web3 as the plucky upstart fighting the big bad corporations with new tech-enabled inventions.

For now, Web3 is more marketing spin than a functioning ecosystem. For some, it’s just a convenient narrative to sell financial products. But there are a handful of early investors and CEOs who stand to make a fortune if even a fraction of Web3 becomes a reality. Ether (ETH), for example, the cryptocurrency on the Ethereum network where many of these new apps are hosted, increased in value from $737 to over $4,000 during 2021.

Web3 promises to create a new “ownership economy” using digital tokens that would enable users to take ownership stakes in decentralized apps. Members of the Web3 group Friends with Benefits, for example, own tokens native to the digital network, which increase in worth as the community’s reputation and value grows. But we should take these claims of “tokens for the masses” with a grain of salt. It’s unclear how any of this would result in a different distribution of resources or fundamentally alter power relations in the digital economy. Why wouldn’t a similar group of early investors and developers end up monopolizing most of the tokens, just like in current cryptocurrencies where wealth distribution remains the same as in real-world economies?

Web3 is unlikely to meaningfully redistribute value because it doesn’t challenge the fundamental drive to commodification that now dominates the web. It’s pitched as a return to aspects of Web1, but like Web 2.0 it extends the logic of monetizing digital interactions even further into our daily lives. This isn’t restricted to financial products and payment systems. The online creator economy, with its brand deals, monetization strategies, and new subscription models, is already reshaping the digital economy. Online gaming is also moving toward a digital asset economy where gamers can purchase customizable skins and weapons through in-game tokens. Players in NFT-based “play to earn” games like Axie Infinity can even earn money from the game. The digital economy’s dominant business models are shifting, but the idea that this would lead us all to owning sizable wallets of digital tokens is just spin.

Creating new markets through expensive (and indeed, environmentally destructive) digital token systems is not the answer. We need digital services delivered as public goods. Rather than making people pay for access to new exclusive communities, we should support the development of digital tools that are universally accessible and free at the point of use. Questioning the practices of digital monopoly capitalists and their data-to-advertising pipeline need not lead down a pathway of libertarian principles of individual ownership.

In my book Platform Socialism: How to Reclaim Our Digital Future From Big Tech, I sketch an ecosystem of alternative ownership models in which diverse communities from the local to the global can own and operate digital tools. Key to such a system is understanding how we can create a variety of forms of social ownership that provide communities with more autonomy but aren’t based on creating artificial scarcity and new markets of winners and losers.

Web3 advocates are right to be concerned about creating substantive participatory rights to direct and control how digital platforms operate. Platform socialism shares with them an idea that digital freedom should include communities actively shaping the infrastructure that dictates the material conditions of their lives. While each suggests new forms of collective ownership, the real difference lies in whether these communities would be run for profit on market principles, or as public goods for the benefit of all.

States would have to be involved in funding the development of alternatives, but we can innovate beyond older models of state-led and top-down initiatives. In the place of a rigid schema of nationalization, we could imagine a broad ecology of social ownership models that acknowledges the multiple and overlapping communities to which we belong.

At the local level, this includes supporting platform cooperatives, which could place platform-mediated courier services, domestic cleaning, and care work under the control of worker-owned cooperatives. A variety of other services requiring greater capital investment such as ride-hail and short-term rental services could be owned by municipal associations at the city or state level.

There is also space for not-for-profit foundations like the Wikimedia Foundation, dedicated to encouraging the development of free digital services for humanity. Services such as search engines, social networks, and creative tools could all be developed and maintained as public goods.

Web3 will be populated by Decentralized Autonomous Organizations or “DAOs.” While they sound like anarchist collectives ready to squat an abandoned building or blow up a pipeline, in fact DAOs are a new organizational structure capable of raising money according to a set of rules encoded into the blockchain protocol. They have been described as everything from an efficient “capital formation vehicle” to “a group chat of internet friends with memes and dreams.”

With voting rights attached to tokens, DAOs provide an incentive structure for people to work for a community and its mission. The precise legal status of these group chats with a bank account is not entirely clear (except in the state of Wyoming, which recognized the American CryptoFed DAO as a legal business entity).

Some features of the DAO are worth exploring. With buy-in from members, the structure could begin to look a lot like a traditional workers’ cooperative. One could imagine a social network DAO in which owner-operators could democratically decide on community guidelines, new features, and rules of membership. Buying and selling tokens would allow people to come and go from the community, and people’s contributions could be reimbursed from a community treasury.

The Blockchain Socialist has suggested that an activist organization could be built through a DAO with democratic governance structures on the blockchain and funds held securely in cryptocurrency that couldn’t be frozen or taken away by a repressive government. The possibility sounds interesting — but there’s also good reason to have reservations.

The first concern is with the idea that DAOs produce a decentralized flat structure without leadership and hierarchy. We should be wary of claims that decentralization is a valuable end in itself. In The New Spirit of Capitalism, sociologists Eve Chiapello and Luc Boltanski suggest that from the 1970s onward, capitalism began to incorporate an anti-hierarchical critique into a new way of doing business. Capitalism largely abandoned the hierarchical Fordist work structure in favor of autonomous network-based forms of organization that were flexible and encouraged employee initiative. Chiapello and Boltanski argue that a new generation of managers began to speak the language of freedom and disruption, which was perfectly compatible with capitalist accumulation because it sidelined concerns of solidarity and social justice. There is nothing necessarily progressive about decentralization; it depends entirely on the political character of the organization and the context in which it operates.

But horizontalism can have a flipside — that, in the absence of organizational structure, traditional power structures assert themselves unchecked. DAO advocates claim they produce “trustless” networks. According to crypto-anarchists, the messy world of power inequalities can be circumvented by putting it all into the code. If code is law, then humans don’t have to worry about trust, cooperation, or differences in power and influence. But power doesn’t work like this. It just reappears at other points in the system — like who gets to write the code, how it’s produced, and what happens when decisions have to be made that are not anticipated by the original coders.

Let’s take the example of ConstitutionDAO, a group that raised money to try to buy one of the original copies of the US Constitution from an auction held by Sotheby’s in 2021. The irony of ConstitutionDAO is that virtually nothing was set in code, not even how much a token was worth, how the Constitution would be owned, what they would do with it, or how this would be decided. The whole system functioned on an enormous leap of faith by members of the community placing their trust in the founding members of the DAO.

ConstitutionDAO succeeded in showing that a group of people could quickly raise money online, but it also revealed a lack of basic democratic mechanisms in how the group was organized. Would Bitcoin whales (those with large holdings of Bitcoin) have an oversize influence in the decision-making if they had won? In many DAOs, one token is one vote, which supports the not-so-democratic idea of money quite literally buying you power. If it was one wallet, one vote, would the single donor of $4.5 million be satisfied with the same power as someone who contributed little more than gas money? There are more democratic ways that DAOs could be organized, but they aren’t currently the dominant model in the space.

The point here is that decentralization is not always democratization. What matters in a democratic organization is that members have agenda-setting power, participatory rights, and mechanisms to hold leaders to account after decisions are made. In DAOs, some governance questions are said to be replaced by “smart contracts” — coded transaction protocols that automatically execute agreements if certain conditions are fulfilled. Simple processes can be automated, but most of what is truly important to a group requires complex deliberative processes that can’t be codified. On-chain governance could give every member a vote on some issues, but it leaves most of the real work hashed out by unaccountable actors setting up the processes and writing the code.

A big part of the narrative around Web3 claims that new technology allows us to make a break with the past. But we need to stop and consider whether these new processes actually support socially useful ends or are going to be co-opted by capitalism to develop a new generation of products. A bunch of crypto folks trying to buy a constitution is an amusing story, but it doesn’t address the real problems of how these communities would be able to deliver public goods in ways that escape new forms of commodification.

The main proponents of Web3 aren’t progressives committed to notions of social justice, but people trying to get rich and hang their latest innovations on a feel-good story of community power. But we don’t need another generation of VCs taking over the internet. We should be treating it for what it really is — a public service — and creating the organizational structures that make it run in all our interests, not those of private profit.

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